10/06/92

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New medical information expands insurance dilemma, Nobelist says

STANFORD -- Medicine's increasing ability to identify an individual's genetic disposition to disease may require the government to offer long-term national health insurance or prohibit insurance companies from using the information, Nobel economist Kenneth Arrow said Oct. 1 at a seminar on biomedical ethics.

Without one or the other of these policy changes, the Stanford University professor emeritus said, patients and their physicians increasingly will face an ethical conflict between medical truth and financial harm to patients.

In some cases, tests that determine an individual's disposition to a particular disease might lead to treatments that would prevent the disease from occurring, but at the same time, might cause the person's health insurance to be canceled, Arrow said.

"There are a few examples now, and very possibly, as our human genome project progresses, we will have people who are uninsurable at birth because they already have a high probability of very costly diseases," he said.

In addition to the ethical conflict posed by these medical advances, he said, economic inefficiencies can be expected to increase. Already, new negative information about one's health status, such as the development of allergies or some other chronic condition, prevent people from changing jobs, retiring or becoming self-employed, he said. Because most U.S. health insurance is made available to people on a yearly basis through groups based on their place of employment, these people have trouble getting new insurance coverage if they change employers.

Employment-based health insurance is "analogous to the situation in communist societies where many benefits, such as health insurance and housing, are attached to the job. That's one of the reasons those countries tended to grow slowly," Arrow said during his lecture at the Stanford Medical Center.

"Restrictions on job mobility are really socially inefficient and individual depriving. The individual is deprived of an opportunity for a better position. Society is deprived of having the best person in the best job."

That inefficiency likely will occur on a larger scale if genetic dispositions to diseases become discoverable at birth, he said.

Arrow took the example of a 20-year-old individual whose medical tests reveal a cell tissue mutation known to be a precursor of colon cancer. The individual does not have the disease itself but is more likely to develop colon cancer over the next several decades than a 20-year-old without the mutation.

Before this medical information was known, he said, an insurer could rationally assume both 20-year-olds had the same chance of getting colon cancer and charge them, or their employer, equal health insurance premiums.

That was fair for all because noone knew who would get the expensive disease, and the premium cost was based on the overall probability of some people in the pooled group needing colon cancer treatment.

The new information would pose no dilemma if both 20- year-olds were insured for life, rather than one year at a time, he said..

Insurance is like a bet on the toss of a loaded coin when no one knows which way the coin is loaded, Arrow said. An even- money bet is fair.

"However, let's say I flip the coin 20 times and 15 heads come up," he said. "My willingness to place an even-money bet disappears."

Some might argue that insurance companies should voluntarily ignore changing individual risk factors, he said, because "in the aggregate, large group risks are smaller than for individuals separately." However, ignoring established individual differences in health insurance would be comparable to asking auto insurers to ignore individuals' driving records, he said. Ultimately, those with lower risk would pay for those with higher risks, and insurance companies who ignored the risk factors would face a competitive disadvantage.

"In effect, if an insurance company decides to take people known to be high risk without a special premium, the burden really falls on the other insured. The question is, is that what you want or not?" he said.

"In a theoretically ideal market, the ethical dilemma would disappear by insuring people against future diagnoses," but that is not likely to be achieved by unrestricted free enterprise, Arrow said.

Government policies could help either by:

• Creating national health insurance, which would be long-term and would not tie individuals to a certain employer. There is no natural reason to base health insurance on yearly employment, he said. Lifetime health insurance for everyone would be "ethically fair and, in many ways, an efficient allocation of risk. Of course, we do know that compulsory insurance has drawbacks," particularly the lack of incentives to minimize treatment costs.
• Prohibiting insurance companies from using individual differentiation information in setting their rates. "The competitive motivation for using the information would then disappear," Arrow said.

Enforcement of the prohibition could be a problem, he said.

"I think for large companies, there's no great problem, but the problem comes around the edges for the self-employed and small firms - the ones where coverage is poor today," he said.

"There are a lot of problems with [small company and individual insurance plans], including their higher administrative costs," Arrow said. Trying to enforce a non-differentiation clause on them "gets into difficult problems with no simple answers."

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